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Retrospective GST Cancellation - Power to cancel GST registration retrospectively must not be used mechanically—Delhi High Court

Case Summary

The Delhi High Court, in a judgment that continues its jurisprudence on protecting procedural rights under the Goods and Services Tax (GST) regime, quashed the retrospective cancellation of the GST registration of M/s Jain Metalloys. The petitioner challenged the cancellation made effective from 01 July 2022, even though the Show Cause Notice (SCN) was issued only on 21 June 2023.

The Court found that both the cancellation order and the rejection of the revocation application were unreasoned, and failed to justify why retrospective effect was warranted. Relying on past rulings, the Court modified the effective date of cancellation to the date of SCN, restoring procedural balance and clarity for taxpayers.

Case Details

• Case Title: M/s Jain Metalloys v. Principal Commissioner of Goods and Services Tax, North Delhi
• W.P.(C): 2864/2025
• Date of Order: 06 March 2025
• Court: High Court of Delhi

Background Facts

1.    Cancellation of GST Registration: The petitioner was issued a Show Cause Notice on 21 June 2023 under Section 29(2)(e) of the CGST Act, 2017, alleging contravention of provisions warranting cancellation of registration.

2.    Final Cancellation Order: Based on this notice, the GST registration was cancelled by order dated 06 November 2023, made effective retrospectively from 01 July 2022.

3.    Revocation Application: The petitioner applied for revocation of cancellation on 30 November 2023. However, the application was rejected via order dated 20 May 2024, based on the petitioner’s alleged failure to provide reconciliations and documents.

4.    Challenge to Retrospective Date: In court, the petitioner restricted their challenge to the retrospective nature of cancellation and did not contest the cancellation per se.

Legal Issues

1.    Can the GST authority cancel registration with retrospective effect without explicitly recording reasons or justification in the order?

2.    Whether a barebone SCN and unreasoned final order violate principles of natural justice and Section 29(2) requirements?

3.    Is the power to cancel GST registration retrospectively to be exercised routinely or cautiously?

Petitioner’s Submissions

Through advocate Mr. Pranay Jain, the petitioner argued:

• The SCN dated 21 June 2023 made no reference to any conduct or facts justifying retrospective cancellation from 01 July 2022.
• The final order dated 06 November 2023 was a template order, lacking any reference to:
• The material considered
• The basis for the retrospective date
• The revocation rejection order was also a one-liner, offering no substantial rationale.
• Such an approach undermines taxpayer rights, especially when cancellation impacts the taxpayer’s buyers, credit flow, and legal compliance.

Respondent’s Stand

The department, while appearing through counsel, argued that:

• The cancellation was as per law, due to contravention under Section 29(2)(e).
• The SCN and subsequent rejection of revocation were due to the petitioner’s non-compliance.
• However, they did not justify the reason for retrospective date, nor place any record to show application of mind regarding the period.

Court’s Analysis and Observations

The Bench carefully scrutinized the records and made the following observations:

A. SCN Was Bald and Unsubstantiated

• The SCN dated 21 June 2023 merely stated that the petitioner violated Section 29(2)(e) without citing:
• Nature of contravention
• Timeframe involved
• Whether it was ongoing or historic

“...The original SCN itself was not based on any material or evidence in support of the allegation...”

B. Cancellation Order Was Unreasoned

• The order dated 06 November 2023 did not explain:
• Why the registration was cancelled
• Why it was cancelled with effect from 01 July 2022
• The Court found the order to be bereft of reasoning and not in conformity with legal standards.

“...Fails to record any reasons for the registration being liable to be cancelled with effect from 01 July 2022...”

C. Revocation Process Also Flawed

• The revocation rejection order was passed without proper hearing, relying on an SCN dated 08 May 2024 that simply sought reconciliation documents.
• The rejection was mechanical, stating:

“You have not replied to the notice... Therefore, your application is hereby rejected...”

• The Court observed that both the initial and follow-up orders lacked any exercise of mind.

Reference to Precedents

The Court relied on several key rulings:

Riddhi Siddhi Enterprises v. CGST South Delhi

• Power under Section 29(2) to cancel retrospectively must not be robotic
• Orders must reflect due application of mind
• Retrospective cancellation affects customer ITC, returns, and liabilities

“...What we seek to emphasise is that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant...”

Ramesh Chander v. Assistant Commissioner, CGST

• Show Cause Notice must clearly state if retrospective effect is proposed
• Final order must assign justifiable reasons
• Mechanical cancellation invalid when returns were filed, and business continued

Delhi Polymers v. Commissioner, Trade and Taxes

• Highlighted dangers of template cancellations without evaluation
• Cancellation with retrospective effect must consider consequences on buyers' ITC

Final Judgment

The High Court allowed the writ petition with the following orders:

1.    Quashed the Order Dated 20 May 2024: Rejection of revocation application was set aside for being unreasoned.

2.    Modified the Cancellation Order Dated 06 November 2023: Cancellation to take effect from the date of the Show Cause Notice, i.e., 21 June 2023, and not 01 July 2022.

3.    Quashed Retrospective Effect: Cancellation effective from 01 July 2022 was held unsustainable and was struck down.

Conclusion

The case of Jain Metalloys v. Principal Commissioner, GST North Delhi reinforces a critical constitutional safeguard—that tax authorities must provide intelligible reasons when exercising powers that affect rights, registration, and compliance obligations.

The Delhi High Court has again made clear that:

• Section 29(2) powers are not automatic
• Retrospective cancellations must be justified
• Show cause notices and final orders must reflect actual application of mind

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

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